Cash or shares? It's your ISA

Much as I have tried to avoid mentioning individual savings accounts (ISAs) this week, because I figure that if I'm getting bored of them, you must be too, it can't be helped. From your letters I can see that many of you are confused and don't know what to do.

Much as I have tried to avoid mentioning individual savings accounts (ISAs) this week, because I figure that if I'm getting bored of them, you must be too, it can't be helped. From your letters I can see that many of you are confused and don't know what to do.

You have until midnight on 5 April to use up this year's tax allowance if you haven't done so already (that's up to £7,000 worth of tax-free savings). But the problem is that the stock market is at a two-year low.

Under "normal" market conditions, my advice would be to invest your money in equities if you don't have to get your hands on the cash for the next five to 10 years. You should also be able to afford to lose it; not that there is any chance of you losing the whole lot, really, but the point is that it shouldn't be money you need to pay the mortgage or household bills. Nor should it be the reserve cash you would be wise to build up (generally, a few months' worth of rent or mortgage payments) in case of emergencies. Such money should be held in a high-interest, easy-access deposit account, such as Nationwide's e-Savings, which pays 6.7 per cent interest on £1 upwards.

However, these are not "normal" times. Rightly or wrongly, we have become used to a booming stock market. The signs are that for the next few months at least - and possibly a lot longer - that isn't going to be the case. It's looking rather gloomy out there.

Of course, buying when the market is low is usually a good idea, because you'll get cheaper investments. But there is a risk that the market has not yet reached its lowest point and could fall further. Timing your moves in and out of markets is a mug's game and not to be recommended. What you have to ask yourself is whether you can afford to lose that money in the short term. Don't commit money you will need to get your hands on any time soon, and invest anyway.

Alternatively, you may want to hold off shares for a while. Anecdotal evidence suggests that while equity ISA sales will be down this year, sales of mini cash ISAs are booming. Everyone seems to be going for the cash option this time around.

The downside is that you can only invest up to £3,000 in a mini cash ISA and you aren't likely to see returns as great as those you could possibly achieve on the stock market. But then, of course, you won't see the losses either. Mini cash ISAs are a bit like savings accounts but the returns are tax-free. And unlike tax-exempt special savings accounts (Tessas), which they were designed to replace, they allow you to access your money at any time - unless of course, you go for one that requires notice. Popular choices among friends and colleagues are Smile, First Direct and Northern Rock, depending on whether you prefer to use the internet or telephone.

* m.bien@independent.co.uk